Market Risk Analysis Volume III: Pricing, Hedging and Trading Financial Instruments

Index

Above par 8

Accounting for dividends 88–90

Agreements 1, 2, 8, 34–41, 199, 321

American option 151, 155–6

early exercise boundary 156–8, 224

pricing 158–9

Annual bond 23

Annual compounding factor 5

Annual coupons 10

Annual equivalent yield 29

Annual rate 3

Arbitrage pricing 82, 87–8, 92–3, 144, 224

Arbitrageurs 87

Arithmetic Brownian motion 139, 141, 291

Arithmetic process 18

Asian option 208, 221–4

Asset management, factor models in 326

Asset-or-nothing option 152

ATM option 154, 155, 184, 190, 238, 239, 240, 318

At par 8

At-the-money (ATM) option 154, 155, 18, 190, 238, 240, 318

Average price option 208, 222–4

Average strike option 208, 221–4

Bank of England forward rate curves 57–8

Banking book 1, 47

Barrier option 152, 219–21

Base rate 8

Basis 68, 95

commodity 100–1

fair value of 95, 99

no arbitrage range 95–7

risk 67

swap 38

Basket hedging 111–12

Bearer bond 10

Bear spread 169

Below par 8

Bermudan option 151

Bermudan swaption 195

‘Best of’ option 209

Beta, volatility

estimation 357–9

mapping 356–7

Binary option 152, 214

Binomial option pricing model 138, 148–51

Binomial tree 148, 244

BIS Quarterly Review 73

Bivariate GARCH model 262

Black-Scholes-Merton (BSM) formula 137, 139, 173, 176, 179

Black-Scholes-Merton (BSM) model 173–85

assumptions 174

implied volatility 183, 231–42

interpretation of formula 180–3

partial differentiatial equation (PDE) 139, 175–6

prices adjusted for stochastic volatility 183–5

pricing formula 178–80

underlying contract 176–8

Black–Scholes–Merton ...